One of the most fundamental aspects of strategy is market trend analysis, and with leveraged markets and futures like Forex, it is even more crucial when determining where to set Stop Loss and Take Profit prices. You need to comprehend what a bullish market is and the features surrounding it in order to do that, in addition to a downtrend and sideways movement.
In this article, the term bullish market will be explained in detail to help investors make the best decision about risk management, calculate appropriate buy and sell price points.
What Is Bullish Market?
When something is asked to be "bullish," it refers to the general trend of a market type that frequently sees price increases. Stocks, money, or cryptocurrencies are all possible. The price of an asset can rise by 30% in a short amount of time with significantly higher volume in retail markets like equities in stocks, the price of tokens in cryptocurrencies, and the price of an asset.
A bullishness in one currency market in the Forex market can indicate a decrease in another currency. Trading professionals can multiply their gains by taking advantage of strong pumps or dumps by using this knowledge.
Bull markets are characterized by optimism, investor confidence, and the belief that good performance would likely last for a long time. Consistently predicting when market trends might shift is challenging. The fact that psychological factors and speculative activity can occasionally have a significant impact on the markets is one of the challenges.
1. Bullish in short term
Considering a market with an increasing price at the moment, it is not possible to determine which type of Bullish is. With the short time frames M15, H1 to D1, the price has an upward correction or recovery, we call it short-term bullish. If you jump to the conclusion that it is long term bullish, it can cause big losses.
To identify a standard short-term bullish market, traders often use a small time frame like M5 or M15, after a bullish reversal pattern appears after a slight decline, if the price continues to move up, then there is a possibility that your prediction is right.
2. Bullish in long term
Long-term bulls, in contrast to short-term bulls, may experience price gains that extend for months or even years. Although the main trend is still up, traders must decide when to buy when the price is at its lowest point.
Investors are drawn to long-term bull markets not only because asset values rise in spot markets, but also because large trading volume in Forex creates a price line with more waves, which is advantageous for quick and lucrative trading.
Long-term bullish market is typically present in strong assets or currencies with long-term value; examples are USD/CAD and XAU/USD; despite high levels of volatility, the long-term trend is still bullish.
3. Bullish in the whole market
Having considered what a bullish market is in the short and long term, traders also need to look out for bullishness in a specific financial market. For US stocks, if in a year, the market is bullish, then there is a high possibility that the strength of the dollar will also increase in that year.
Recent history's most notable bull market occurred from 2003 and 2007. The S&P 500 experienced a big increase during this period following a prior loss; as the 2008 financial crisis took hold, significant declines resumed following the bull market run.
Characteristics of Bullish Market
Understanding what a bullish market is is also understanding its phases. Whether short-term or long-term, an uptrend will go through 3 stages:
Accumulation: Occurs at the end of a bearish period, this is when the price line is sideways after a strong decline.
Growth: After the price has accumulated enough and the buying force is strong enough, the price level starts to increase strongly. Good Forex traders will know to capture the buy point at the end of the accumulation period and the sell point when the price has reached a climax.
Distribution and Recession: After creating a top, the price starts to rise more slowly and shows signs of reversing to step through the new trend.
Demand is greater than supply
When it comes to a bullish market, it is indispensable that the constantly updated media will create FOMO in the community and push the price up. When stock prices go up, its effect will also help the strength of currency pairs change positions. As a Forex trader, study a significant increase in demand in the market and decide to enter in that currency.
Tips For Effective Strategies In The Bullish Market
1. Use the right Indicator to identify the signal
In order to confirm whether the market is in a bullish season and in what type, traders need to make good use of the indicators and collect more information. Basic bullish candlestick patterns:
Bullish Engulfing: In a short time, the price is pushed down deeply and then bounces sharply.
Bullish Kicking: The reversal area creates a gap
Knowing some basic candlestick patterns, traders will choose the right indicator to find bullish signs. For example, in a bullish market, the SMA(50) line is always below the price line. The closer to the recession period, the more SMA(50) tends to get closer to the price line.
2. Stay away from FOMO
With both bull and downturn markets, this should be kept in mind. The value of USD or CHF currency pairings has recently altered significantly due to bad news concerning large banks in crisis, such as Silicon Valley Bank in the US or Credit Suisse in Switzerland. This does not imply that you invest all of your money in these pairs. Also, every small tweak can quickly burn through your account balance.
3. Pullbacks catching
This rule is similar to Dow theory, when price hits resistance or support there will be signs of a correction. Even if you don't know what a bullish market is, you can still use these pullbacks to enter trades effectively.
During a strong uptrend, there will always be pullback zones in the middle, which traders will take advantage of to place short-term Sell orders in these areas and Buy for a longer period. Remember, always use Stop Loss and consider Risk:Reward ratio carefully to maximize profits and minimize risks.
4. Be careful with Bull/Bear trap
A decreasing trend in a stock, index, or other investment that reverses after a compelling rise and breaches a prior support level is referred to as a bull trap. This is a misleading signal. The action "traps" investors or traders who followed the purchase signal and causes losses on the ensuing long bets. A bear trap, which happens when sellers fail to drive a slide below a breakdown level, is the reverse of a bull trap.
Bull traps can be avoided by traders and investors by looking for confirmation after a breakout via technical indicators and/or pattern divergences.
Understanding what a bullish market is is simple, but understanding all the characteristics and applying it to a trading strategy is the key to help traders to make profit. Preparing knowledge and experience is the best preparation when the bull market is coming up.